South Africa :Transnet Board Chairman,Popo Molefe has confirmed at a media briefing that a Chinese rail company has repaid R618-million to the state-owned rail company.
The R618-million represents a 10% advance payment that Transnet made in terms of a R6.18-billion maintenance contract that it handed to CRRC E-Loco Supply in 2016.
The 12-year contract required CRRC E-Loco to provide
maintenance on the various locomotives, including the contentious 1064
locomotive package, that Transnet contracted between 2012 and 2014 to
buy from China South Rail (CSR) and China North Rail (CNR). CRRC E-Loco
is a division of the amalgamated Chinese rail company that was formed
when CSR and CNR merged.
One source familiar with the deal said the R618-million advance payment was made to CRRC E-Loco before the contract was even been signed. Transnet confirmed that the payment was made after the award letter was signed, but is yet to confirm whether the actual contract had been signed when the R618-million was transferred to the Chinese supplier.
The R6.18-billion maintenance contract was in addition to
the R28-billion in contracts awarded to CSR and CNR to supply
Transnet confirmed that CRRC E-Loco agreed to return the advance payment without Transnet needing to serve court papers, but that negotiations were continuing to reclaim the VAT portion of the advance payments and to determine whether the R6.18-billion contract should be cancelled entirely.
“We have recovered the deposit, the advance payment… In terms of the contract itself, that’s under review at this time for us to actually see what our options are on that maintenance contract. We’re also evaluating whether there’s a need for it,” interim chief financial officer Mohammed Mahomedy said at the media briefing in Sandton.
Molefe confirmed that Transnet would also start its first round of negotiations with the suppliers of the locomotives themselves – CRRC, Bombardier and General Electric – regarding potential overpayments to them.
“[W]e would not necessarily pay the full amount of the
contract, we would pay the amount minus the undue enrichment… They will
have to convince us that they were entitled to that money,” Molefe
But Transnet is not only focusing on the locomotive manufacturers.
Between 2013 and 2017, global consulting giant McKinsey and its partner Regiments Capital received an estimated R1.94-billion in consulting fees for work on Transnet’s massive capital expansion project.
AmaBhungane’s investigation showed how roughly a quarter of those fees were promised to the Guptas and their business partner Salim Essa, who acted as fixers or “business development partners” to help the consultants secure the contracts.
Initially Regiments director Niven Pillay denied knowing about the millions in “business development fees” flowing into anonymous letterbox companies controlled by Essa and the Guptas.
In a 2017 interview he told us that neither he nor Regiments chairman Litha Nyhonyha “were party to any of the payments to Homix” – one of the most notorious letterbox companies used to receive the payments. “We found out after the fact and stopped it.”
But in an affidavit filed in court in October last year, Pillay admitted that he had known about the payments since 2012:
“The fee agreed at the time was 35% of all revenue earned, 5% to
[business development partner Kuben Moodley]
and 30% to Mr Essa, or their nominees… We were informed by [Regiments director] Dr [Eric] Wood that this fee was later increased to 55%…”
Transnet has already served papers on Regiments, demanding that it return roughly R150-million it received for facilitating a loan between Transnet and China Development Bank.
But that still leaves more than R400-million of the R1.94-billion paid to McKinsey and Regiments by Transnet which was not used to provide services but instead channeled to Essa and the Guptas, seemingly for helping the consultants to secure contracts from Transnet.
“We are in discussions with [Regiments]. We are talking to them and trying to establish exactly what was paid to letterbox companies but also accountability for possible repayment to Transnet,” Mahomedy confirmed on Thursday.
With regard to McKinsey, Mahomedy said: “We are looking at the services rendered as well as what opportunity may exist for us to have any recourse with them.”
McKinsey has consistently denied knowing about these payments, and Molefe said that Transnet is receiving “co-operation” from the embattled consulting firm.
Molefe was stinging in his criticism of what he found when he and the current board arrived at Transnet in May 2018.
“What we found in the organization was nothing short of a horror show, a horror movie. Things you thought would not happen in this country and in a state-owned entity. Some of the key architects of state capture had effectively turned Transnet into a piggy bank.
“In our view, many of these executives who were responsible for running Transnet went to the office every day primarily to loot… But I must hasten to say there were many more who knew nothing about what was happening because they were not part of the whatsapp group…
“Transnet in the phenomenon of state capture was the first target of the champions of state capture, the Guptas. But I’m sure as we go on into the year you’re going to find that there are many others who emerged and whose modus operandi is similar to … the Guptas,” he said.
*This story was first published in S.A. AmaBhungane